EngageSmart, Inc.

Good morning. Thank you for attending today's Engage Smart first quarter 2023 earnings call. My name is Todd, and I will be your moderator today. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and 1 on your touchtone phone. You may withdraw yourself from the queue by pressing star 2. Please note this call will be recorded and I will be standing by if you should need any assistance. I'll now turn the call over to Josh Schmidt of EngageSmart. Josh?

Thank you. Good morning and welcome to our first quarter 2023 earnings call. With me on the call today are Bob Bennett, Chief Executive Officer, and Cassandra Hudson, Chief Financial Officer. Our earnings press release, supplemental presentation, and associated form 8K can be found at investors.engagesmart.com. During this call, we will be discussing certain forward-looking information. Actual results could differ materially from those contemplated by these forward-looking statements. Please refer to the risk factors section of our annual report on form 10K and other SEC filings for more information on the risks regarding these forward-looking statements and risk factors associated with our business. All metrics discussed during this call are non-GAAP, unless otherwise noted. A reconciliation of non-GAAP metrics to the nearest GAAP metric, as well as statements regarding why management believes these measures provide useful information, can be found in our earnings press release and supplemental presentation, both of which are available on the investor relations section of our website. This call is being webcast live and will be available for replay on our website at investors.engagesmart.com. I would now like to turn the call over to our CEO, Bob Bennett.

Thanks, Josh. Good morning, everyone, and thank you for joining us on our first quarter 2023 earnings call today. We are thrilled to kick off the new year with an excellent first quarter that showcases the strength and resilience of our business model. EngageSmart delivered our seventh consecutive quarter of record revenue, which is $88.4 million, representing 31% year-over-year growth, all organic, and record adjusted EBITDA of $17.3 million, which is an adjusted EBITDA margin of 19.6%. Our teammates' hard work and unwavering dedication to excellence have been instrumental in driving our success and enabling us to deliver exceptional value for our customers. Throughout the first quarter, we continued to see sustained demand and favorable secular trends across both segments of our business. We also continued to make progress in driving product innovation, further solidifying our market position. As we move forward in 2023, our focus on simplifying customer and client engagement is paying off, and we continue to expand our reach across all verticals. Before Cassandra dives deeper into the details of our financial performance and our outlook for 2023, I'd like to share some first quarter highlights. The high demand for mental health care and the shortage of professionals presents a unique opportunity for our SMB segment to make a meaningful and positive impact. Driven by new customer ads and favorable transaction revenue, SMB achieved revenue growth of 36% in the first quarter. Our enterprise segment is well positioned to capitalize on the long-term trend of organizations digitizing their operations, providing a steady tailwind for growth. Enterprise delivered revenue growth of 25%, fueled by strength in digital payment and paperless adoption, and continued customer goal lives this quarter. Our growth strategy in SMB has two main elements and is showing great traction. The first element of our strategy centers on our core mental health vertical, where we see a growing need for care due to the prevalence of mental health disorders. According to the American Psychological Association, 45% of psychologists agreed or strongly agreed that they felt burnt out in 2022. highlighting the strain on the industry. Simple practice presents a unique opportunity to address this challenge. By streamlining administrative functions, simple practice gives practitioners time to focus on what they care most about, treating their patients. The second element of our strategy targets group practices, which we see as a significant growth opportunity. We continue to see traction with this area in Q1, particularly among small group practices. These are an excellent fit for us, given our track record of helping solo practitioners expand their businesses with our comprehensive solution. We continue to invest in developing new features and functionality to cater to the needs of both small and large group practices and are encouraged by our progress with both. Additionally, we continue to see strong market expansion growth, particularly with speech-language pathologists and occupational therapists. One of the keys to SimplePractice's success is its ability to build and foster a community around its platform. Our customers don't just need a software solution, but also a supportive community that can help them succeed in their practices. We've taken this approach to heart and are investing to create resources that bring our customers together. In a recent survey of over 900 practitioners, we found that 75% say that mentorship is a critical, aspect to their career success, but only 25% currently have a mentor. With our vast network of over 169,000 mental health and wellness practitioners, we are uniquely positioned to address this gap and connect practitioners with peer support. In March, we launched a pilot 50-member mentorship program, and the interest we saw was enormous. In fact, we received over 10 times the number of applicants than we had room for. We are excited about initiatives like this as they help us expand our community, bring new practitioners into Simple Practice, and enable us to grow our brand. We are committed to making mental health care more accessible. Our newest offering, Simple Practice Enterprise, is an extension of that mission. We believe our practitioner network has the potential to be particularly valuable for employee assistance programs, or EAPs, and managed care organizations, or MCOs. which often struggle to find therapists for their network. By providing easy scheduling with our existing practitioners, Simple Practice Enterprise can address systemic issues regarding therapist supply while also improving efficiency. Simple Practice Enterprise also strengthens our flywheel by expanding our in-network practitioner base and growing our patient and practitioner community. We are now in the process of bringing live additional EAPs and MCOs that we previously signed and look forward to updating you on our progress. Beyond simple practice enterprise, we continue to invest in revenue cycle management, or RCM, to address the challenges practitioners face when dealing with insurance. Accepting insurance can be complicated and time-consuming, particularly for solo practitioners and small group practices that lack the necessary resources or expertise. As a result, they often rely on third parties to understand the various policies, submit accurate claims, and deal with denied claims or payment delays, or they choose not to accept insurance at all. We believe simple practice has the potential to improve access to mental health care by transforming how solo practitioners and small group practices manage insurance. We are developing an innovative ecosystem that is designed to help practitioners accept insurance at scale and maximize reimbursement rates so they can focus on what they love most, treating patients. With a pilot program underway, we are making great progress in gathering valuable insurance insights, understanding customer expectations, and determining the most effective ways to add value to our simple practice solution. We are excited about the initial feedback and will keep you updated on our progress as we advance our solution with the goal of achieving strong product market fit. Now turning to our enterprise segment. Enterprise continued to perform well, driven by steady wins throughout the quarter and ongoing digital and paperless adoption of our solutions. The industries we cater to, utilities, financial services, government, healthcare, and giving, rely heavily on outdated software that lacks modern features and capabilities. However, whether it's shopping online or paying bills, consumers in today's digital age demand a convenient, user-friendly, and seamless experience. In these legacy industries, businesses often fall short in providing even basic functionality such as mobile access, online payments, or automated reminders and notifications. At Invoice Cloud, we have addressed this challenge by creating tight integrations and adding new features on top of existing systems. Our approach enables our customers to deliver a modern experience without the need for expensive overhauls. Once implemented, we partner with our billers to drive digital adoption with them, and that's why we win. We continued to see robust customer go-lives in the first quarter of 2023. In insurance, for example, we went live with our largest customer to date. In utilities, we went live with several customers, including Chugach Electric in Alaska, Charter Township of Canton, Michigan, and Vago County, Indiana. In addition, we achieved new records of digital and paperless adoption. Notably, we are seeing an acceleration of adoption with recent cohorts, a testament to evolving customer preferences and our ability to drive superior rates of digital adoption for our billers. Our first quarter was also a strong bookings quarter for InvoiceCloud, fueled by consistency in the mid-market. In utilities, we recently signed the town of East Hampton, Connecticut, and the city of Quincy, Illinois. And in insurance, we won LUVA workers comp. In tax, we signed several new customers in North Carolina, where we benefit from tailwinds rooted in recent customer wins and strategic alliances. Forming new strategic alliances and strengthening existing relationships remain important growth drivers as they open new markets, add to our top of funnel, and accelerate sales and implementation cycles once they're onboarded. Additionally, our network often enables us to move up market more quickly. One of our key initiatives is to expand our network and further accelerate our strategic move up market through industry conferences. For example, in the first quarter, we participated in the invitation-only Oracle Energy and Water Customer Edge Conference in San Diego. InvoiceCloud was one of six companies that presented in the event's innovation showcase, a forum that enables forward-thinking technology companies to share solutions that shape the future of energy and water. In the past, we've also worked with Oracle Energy and Water customer service and billing technologies to provide real-time integrations, new digital engagement efficiencies, and increased customer satisfaction to utility customers like the city of Escondido, California. We are excited about potential opportunities to collaborate with Oracle in the future. In addition, Invoice Cloud has joined the Oracle Industry Lab as a technology collaborator. Another key success driver is innovation. We are always striving to be at the forefront of product development and thought leadership to meet and exceed our customers' expectations. Most recently, we joined the Utility 2030 Collaborative. The collaborative focuses on helping customer-facing and operations-focused departments improve their impact on customers and employees. We look forward to sharing critical insights on customer preferences and how our solution helps utilities keep revenue streams consistent while assisting payment challenged customers. In summary, we've had a strong start to fiscal 2023, delivering yet another quarter of record revenue with expanded EBITDA margins. We continue to drive market adoption of solutions that help save costs, improve operational efficiencies, and elevate customer satisfaction. Our suite of vertically tailored SaaS solutions delivered outstanding outcomes fueled by persistent customer demand, platform adoption by payers, and excellent customer retention rates. This demonstrates the strength of our business model and our position as leaders in customer engagement software with integrated payments. With that, I'll hand the call over to our CFO, Cassandra Hudson. Cassandra?